Qatar Stock Exchange (QSE) organized a webinar on ‘Key 5 Financial Ratios Every Investor Must Understand’ which is part of QSE’s online-financial education initiative. Samer Abou Zaghla, QSE Education Manager demonstrated the most important five ratios every investor should know when trading on the stock exchange and what they mean during the webinar.
He said, “An investor should have investment goals when they invest in the stock market, highlighting three popular goals for investors”. He said the listed companies in all stock exchanges have obligations which are called disclosures which should always be disclosed to the market, shareholders, and investors as all this information has an impact on the price.
“The most important financial information for companies is their financial statements. The listed companies have obligation to disclose their financial statements four times a year. The first-quarter financial statements are in the end of March, the second quarter at the end of June, the third quarter at end of September, and finally the annual financial statements at the end of the year or December 31.
The mother of all financial statements is the Balance sheet which records the company’s assets and liabilities. He discussed the Earning Per Share (EPS) which is the part of a company’s net earnings allocated to each outstanding share. EPS defines how much profits a company makes for each share of its capital and is a broadly used measure for companies’ earnings.
A greater EPS indicates more value since investors are will willing to pay more for a company with higher earnings. He shed light on the Price to Earnings Ratio (P/E Ratio) which is the ratio for valuing a company’s price in the market by measuring its share price in comparison to its EPS. P/E ratio is used by investors to determine the value of a company’s shares in the market.
It is also used for comparison purposes either peer to-peer between two companies, overtime or against average P/E of the industry or the market. He said, “Most of the investors around the world are very interested in P/E ratio. A high P/E ratio indicates that a company’s stock is over-valued.
But also, might suggest that investors are expecting very high growth rates of the company’s future EPS and high potential growth based on the company’s performance in the coming years. He also talked about Price to book value ratio (P/b ratio) which is the ratio of the company’s market value compared to book value and Dividend yield (DY) which is a percentage that shows how much a company’s cash dividends compared to its stock price.
“Diversification is very important. Stock markets are all about expectation and anticipation in the future. Therefore, we need to diversify and distribute the investment over several companies in order to mitigate risks maximize your profits,” he added.
Today there are seven sectors across 49 listed companies on QSE. The seven sectors represent the economy of Qatar which is promising and fastest-growing in the world.
